With the number of ultra-wealthy families on the rise, so too are expectations and options for managing their wealth. A family office may be the best solution for these families, but important choices must be made. Is a single-family office (SFO) the right solution, or is the family better served by hiring a multi-family office (MFO)? Or is getting the best of both possible? For advisors serving these families, there is a significant opportunity to provide value-added, unbiased advice that can help families shape their family wealth management strategy for decades to come.

Continued Growth Of Ultra-High-Net Wealth And Family Offices

Families of significant wealth want to preserve and grow their wealth, manage and reduce risk, and free up time for the things important to them and their family. There is a clear trend that more families are seeking an alternative to traditional wealth management firms and private banks. 

WealthX, a wealth information and research firm, has forecast the global ultra-high-net-worth (UHNW) population (defined as individuals with over a $30 million net worth) will rise to 360,390 people by 2022, controlling $44.3 trillion, an increase of $12.8 trillion over the next five years. As global wealth has increased, the number of family offices serving those families has also increased, both in numbers and in importance. According to the family office research and data firm FINTRX, there are as many as 5,000 family offices worldwide including both SFOs and MFOs. Meanwhile, according to Cerulli Associates, MFOs are the fastest-growing high-net-worth channel in the investment management industry, expected to influence $1.23 trillion in assets by 2022. 

For families considering establishing their own family office or engaging a multi-family office, there are several considerations for making a decision.

Helping Families Evaluate Key Differences

Although there is no officially established functional definition of “family office,” most agree there are two main types: single-family and multi-family. Each can serve important and similar functions but there are key differences including legal and regulatory considerations for each. (Note: There is a formal legal definition of a “family office” in Section 375.202(a)(11)(G)-1 of the Investment Advisors Act of 1940 that is used to define when a family office is exempt from registration with the SEC as an investment advisor.)

A SFO generally serves one family. It provides a range of services depending upon the needs of the family but is usually centered on investing and/or accounting. They are generally not registered with the SEC as an investment advisor.

MFOs are generally organized as registered investment advisers, as trust companies, or some are structured as accounting or law firms serving multiple families.  A general definition of an MFO is an RIA with a dedicated focus on serving ultra-wealthy clients with a minimum of $25 million in investable assets and provides family office services in addition to asset management. 

There is one inherent difference between SFOs and MFOs that often goes unstated and overlooked: profit motive. 

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